Industry Committee on Nov. 24th, 2006

[The Chair, Conservative, James Rajotte]

I call this meeting to order.

First of all, as the chair I just want to make a brief opening statement. This is our thirty-third meeting of the Standing Committee on Industry, Science and Technology of this parliamentary session. It's continuing our study of the challenges facing the Canadian manufacturing sector, pursuant to Standing Order 108(2).

It's wonderful to be here in Edmonton, my hometown, the capital of Alberta, the gateway to the north. It's the final stop of our committee's national tour on the challenges facing the manufacturing sector. Of course, it's especially nice to be here when it's so warm and hospitable in the city. I think it was plus 15 in Windsor yesterday.

I just want to briefly recap. Since the spring our committee has been studying the challenges facing this sector. We issued an interim report in June. We hope to finish our report next week or the week thereafter, present it in Parliament in mid-December, and then have the government formally respond with policy direction changes and certainly with some actions in the next budget. The challenges we've been facing or identifying since the beginning have been the rapid appreciation in the value of the Canadian dollar; increasing energy costs; competition from emerging economies, particularly China; the availability of skilled labour; and the regulatory environment.

I would say all committee members have worked very hard on the study of this issue and we hope that our report will have a real impact. I think it certainly will.

So we are looking for specific recommendations, and that's exactly why we've embarked on the cross-country experience. We've done seven cities in five days: Halifax, Montreal, Granby, Oshawa, Toronto, Windsor, and now Edmonton. It's frankly been exhausting and exhilarating at the same time. I think our committee has only made it because of an Edmonton product, COLD-fX, which we should thank Dr. Shan for.

We've had some extremely interesting sessions. We've also had some very enlightening site visits. We've combined meetings typically in the morning with site visits in the afternoon to all sorts of enterprises across the country.

We have with us today witnesses for whom I certainly have a lot of regard. I know there are some big picture thinkers on the whole manufacturing sector, but also on competitiveness and prosperity in general. I'd like to introduce them now, and then we will start with five-minute opening statements and go to the members right after that for questions.

First of all, from the Alberta Research Council, we have the president and CEO, Mr. John McDougall. From the Canadian Manufacturers & Exporters, Alberta division, we have Peter Ouellette, who is chairman of the board for the Alberta division. From the Edmonton Economic Development Corporation, we have Mr. Allan Scott, president and CEO. From Standen's Limited, we have Mel Svendsen, president and CEO, and I understand he is the former chairman of the board, from last year, of the CME for Alberta. From Team Calgary, we have Mr. Bruce Graham, president and CEO of Calgary Economic Development. From Flexxaire Manufacturing Inc., we have Mr. Jonathan McCallum, vice-president, operations and engineering.

We also have Mr. Brian McCready, from the Canadian Manufacturers & Exporters, with us here in the audience. I just wanted to point him out for members.

We will start with five-minute opening statements. I was asked how tough I am with time. I do try to keep it to time. We have an hour and a half this morning, and we have a lot of members who obviously like to engage in questions with the witnesses. So if we could try to keep it to five minutes, that would be appreciated.

We'll start with Mr. McDougall, for five minutes, please.

[John McDougall, President and Chief Executive Officer, Alberta Research Council]

Thank you, Mr. Chairman. I appreciate the opportunity to be here.

I'm the CEO of the Alberta Research Council, as was mentioned, and also the chair of an organization just launched called Innoventures Canada, which is bringing together research and technology organizations that kind of live together in the middle space in Canada. As of this week, it looks like we have 20 or so of those organizations, representing probably 85% of the work that's done in Canada in this space, and we're very excited about the potential contributions we're going to make to the country.

I'd like to make three points today. The first one is that obviously productivity and competitiveness are important challenges. Second, there really is a disconnect between research investment and business outcomes. Third, research and technology organizations have proven the value of market-based models for helping Canadian companies create value and improve the value of research investments. We need your help to do more.

We all know that economic sustainability is linked to the ability of companies to deploy technology. Technology can certainly help mitigate environmental impacts, help companies grow, and generate exports and jobs--all the things that I think you, as parliamentarians, want to have happen.

You mentioned China. I just returned from China on the weekend. When you watch their pace of development, it certainly gives cause for concern and for thinking. It's easy, as you can see in China, to catch up by taking and using technology from other places in the world. It's harder to be in front of the innovation paradigm, where you actually have to be constantly creative and constantly innovative.

The challenge Canada has, of course, is that our balance of trade is heavily skewed toward the resource sector. Although we do have trade in other areas, if you look at the net balance of trade, the positive values come predominantly from energy and forestry. Our innovative products and services, in terms of manufactured goods, largely are in a negative or, at best, an even balance.

With all the challenges you've heard about manufacturing employment, the question is how we help companies that actually produce the goods and services become more successful. The public expects investments in R and D to be successful and to contribute to wealth. The government has made major efforts to increase investment, which is occurring. As I understand it, investment in academic research in Canada puts us at about number five in the world now, and that level of investment has been increasing steadily for several decades. But if you actually look at our economic performance and try to correlate the two, at the same time, we've fallen economically to number thirteen, and we've fallen in competitiveness to a rank of number sixteen in the most recent report.

The challenge we have is that the stock-in-trade of academic research is ideas and highly qualified people, both of which are very important. But unless they're actually taken up, used, and deployed commercially, they really are of little value other than for the researcher, if I can use that terminology. Successful innovation is all market-based. Wealth is created by companies, so R and D has to be linked to the needs of business. People who do not have market and managerial knowledge and know-how and an understanding of industry are often unable to help. This is where the Canadian innovation system is deficient.

If we look at the rest of the world, we find that every successful innovative economy has acknowledged that and has created special organizations to live in this mid-space, the space between the idea--the discovery part of the world--and the application or deployment part of the world. In Canada, we're sadly deficient in those areas. Our balance is inappropriate, and as we would describe it, we've created an innovation dumbbell, in a sense, with a high level of activity on the discovery end and a high level of activity on the using end, but not enough in between to connect them effectively.

Research and technology organizations do provide that. So we created I-CAN as a step toward a more effective Canadian system of innovation. Our challenge, of course, is that I-CAN members, by their nature--many of them are regional or provincial--are ineligible for many federal funding programs. Most of them have small, what would be called A-base or core funding. They're very market oriented, generating typically 70% to 90% of their total income from industrial contract work, so they are connected. The challenge is how to increase that.

The final thing that I-CAN has done is this: by bringing together the national capability into a single organization, we were able to identify projects and opportunities that none of us could take on independently. If there's time in the discussion period, I'd like to explore a little bit about how some of those kinds of projects can help things like greenhouse gases and that sort of thing.

So thank you, Mr. Chairman, for this opportunity.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. McDougall.

We'll go right away to Mr. Ouellette.

[Peter Ouellette, Chairman of the Board, Alberta Division, Canadian Manufacturers & Exporters]

Mr. Chairman and members of the committee, it's a pleasure to have the opportunity to address you on the subject of manufacturing competitiveness in Canada, with specific reference to Alberta.

To establish my personal background, I've recently retired from a 34-year career with the steel industry. In that period I developed expertise in the application of steel throughout North America; in the automotive industry in Ontario, in mid-U.S.A.; in the mining industry coast to coast in Canada, in the United States, and internationally; and in the construction marketplace coast to coast in Canada. So I've seen a lot of manufacturing from high tech automotive through to garage entrepreneurial operations.

Since my retirement--and that was earlier this year, in June--I've maintained my involvement in the manufacturing industry by working through the Canadian Manufacturers & Exporters association, where I chair a very strong Alberta board of directors. They're leaders of successful manufacturing and exporting companies, a board that advocates for many things, some of which are lean manufacturing training, the establishment of best practice regional manufacturing cluster groups, for virtual centres for manufacturing excellence, for training and manufacturing innovation and skill development, for celebrating the success of exporting, for education in business ethics, and for interprovincial trade through a program called icosmo.

My colleagues and I have taken this icosmo program to Ontario, to New Brunswick, to British Columbia, and we've scheduled to deliver the program in basically every manufacturing centre in Canada. It's designed to present to Canadian companies outside of Alberta the opportunity to get involved in this very strong economic cycle that we have in this region. The program is designed to move work out of Alberta, but to keep it in Canada where we have manufacturing companies that have open capacity and have absolutely great capability to contribute to the Alberta capital equipment growth plans related to the oil sands.

The plan is to load up Canadian capacity before the work is offered to manufacturers in other countries. This is a strategy that will increase capacity utilization of Canadian manufacturers and assist in their overall competitiveness.

Allow me to highlight some of the priorities that I see related to Canadian manufacturing competitiveness. You are familiar with the CME and the 20/20 program completed last year. It's the most extensive survey ever conducted of the Canadian manufacturing sector, and I refer you to the database. The CME program appropriately surveyed the Alberta companies and the recommendations have already been recorded in your previous sessions with Dr. Jayson Myers and others of the CME.

Overwhelming in Alberta is the need for people to support the existing and new activities that are driven by the energy sector, specifically the oil sands. The economic spin-off from this red hot Alberta economy has stretched the labour demands in every sector, from residential construction and land development right through to the retail and food service industries. The drive has resulted in labour shortages in professionals, in skilled trades, and in general labour. So solutions require all levels of government to participate.

I'm sure others will speak with greater knowledge than I have of the solutions, but it's most important to put on the table that this is a priority for the short-term focus of attention, to be able to sustain the competitiveness of this very strong economy we have in western Canada.

I want to address with you now the problems that we have with integrating our Canadian industry with the global market. Only the best participants in the world marketplace can survive. We have some of those in Canada. We have them here in Alberta, best-in-class companies, and we have the valuable resources to develop more. We have the fundamentals--we have natural resources that are needed in manufacturing, we have the energy that turns these resources into products, we have the people who have the skills of senior management in operations and international marketing, and we have access to international transportation systems to ship the products to offshore markets.

There are two problems that we have. Manufacturing companies do not know the vision of the government as it relates to export strategies for manufactured goods, and these companies carry an unnecessary burden with the infrastructure and policy needed to move the goods across Canada to port and then further on to world markets.

My experience is that a strategy of being all things to all people does not allow for a focused strategy in any business; it confuses the workforce and does not focus a company's energy and innovation. This applies as well to regions and governments. There is a need to pick the niche products and markets and then to focus energy in those very specific directions.

I think my time is pretty well up, so I'm going to pass this over, and we can talk some more during the questions.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Ouellette.

We'll go to Mr. Scott for five minutes.

[Allan Scott, President and Chief Executive Officer, Edmonton Economic Development Corporation]

Good morning, Mr. Chairman and honourable members of the committee. Thank you very much for coming to Edmonton and for the opportunity to address you this morning. I trust that everybody will have a pleasant and productive time in our city in spite of this unseasonably cold weather we're having here.

On behalf of the Edmonton Economic Development Corporation and the Edmonton Chamber of Commerce, who could not attend today, I'd like to zero in on the critical challenge facing manufacturers from an Edmonton perspective.

Edmonton's diverse manufacturing sector—with over 2,200 companies—is probably the fastest growing manufacturing cluster in Canada and a major driver of this region's economy, which generates in total $42 billion of GDP on an annual basis.

At present, Edmonton's manufacturing sector is obviously closely linked with northern Alberta's oil sands and the conventional oil and gas sectors. We all know about the $81 billion that is forecast to be invested here over the next 15 to 20 years, and it's clearly a sign of the significant manufacturing potential that exists here. In addition, we have the other burgeoning sectors, including agrifood processing and emerging life sciences and nanotechnologies, all of which will require specialized manufacturing expertise.

Maybe surprisingly for many, the future of many of Edmonton's manufacturers is one of global customers, global supply chains, and international business networks. With customers demanding improved quality, quicker response times, and shorter times to market for new production, Edmonton's manufacturers need to embrace production efficiencies and the new technologies and techniques that offer maximum precision and high flexibility.

Your committee has done a good job of highlighting the many challenges facing the sector, including the high value of the Canadian dollar right now; competition from low-cost producers like China; rising input costs, including energy and material supplies; and extreme labour shortages, all of which are really high on the agenda here in the Edmonton area. These factors are obviously critically and negatively impacting our ability to compete in the global marketplace, let alone allowing us to retain our local market share against low-cost offshore manufacturers.

Our manufacturers are working to restructure their businesses in response to the challenges they face, but the future of competitiveness and growth in the manufacturing sector, I believe, depends to a great degree on productivity enhancement, building on the process efficiencies and improvements that emerge from innovation and skills development.

We at EEDC have already initiated many programs to support the region's manufacturing sector. We continually connect with industry through surveys, on-site company visits, and manufacturing leadership network groups. The examples of activities in this area are based on collaboration with various levels of government and, of course, the Canadian Manufacturers & Exporters.

To date we've been focusing on lean manufacturing efficiencies, linking Edmonton industry with seminar offerings, one-on-one expertise and major conferences on lean manufacturing at key educational institutions. Successful partnerships with NAIT's Shell Manufacturing Centre, and that college's production enhancement certificate program have already produced significant improvements in the industry. But this work needs to continue on a much larger scale to effect the long-term improvements required. Our work to date in this area has made it clear—especially with our current labour environment—that efforts need to continue to focus on productivity improvement, taking it to an even higher level.

The gap between Canadian and U.S. productivity has continued to widen since 1999. This productivity weakness has been shown, significantly, to be related to lower investment in machinery and equipment, in information and communications technologies adoption, and in automated processes and technologies implementation.

We know that once Edmonton's core manufacturers have built a solid business foundation based on productivity improvements, they find themselves in a much better position to explore further innovations, such as automation in welding and joining processes, and specialized materials.

We believe that support for productivity programs and innovation through automation is essential. We also support the key recommendation of the Canadian Manufacturing Coalition, made through a letter dated November 9, 2006, to Prime Minister Stephen Harper, which requested “a two-year write-off (CCA) for investments in new manufacturing, processing and associated information and communication, energy, and environmental technologies”.

We echo this recommendation because this is a visionary and very direct way that the federal government can quickly stimulate valuable investment that can lead to productivity gains across the manufacturing sector at this critical time in Canada, for this province, and for this region. By adopting and supporting these initiatives, the federal government will demonstrate a renewed focus on building a more competitive and sustainable economy. There will be continuing global market opportunities for Edmonton region businesses, and overall productivity increases will ensure that we are able to be a true global player.

In closing, I understand that you're going to have an opportunity to tour some of our manufacturing firms today. We thank you for taking the time to do that. Hopefully it will be an interesting process.

Thank you very much for this opportunity to comment on the Edmonton situation.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Scott.

Shortly before turning to our next two guests, I do want to acknowledge the effort that both of them have made to come from Calgary, especially with the weather conditions. As a committee, we thank you very much for doing that. It certainly shortens our travel time, so we appreciate that very much.

We'll start with Mr. Svendsen, for five minutes.

[Mel Svendson, President and Chief Executive Officer, Standens Limited]

Thank you for inviting me to be part of this process. I certainly welcome you to the west. Certainly, people who have grown up in the core of Canada understand manufacturing in a slightly different way. Our company is actually involved in that type of manufacturing.

We produce products for the automotive industry, and specifically for heavy trucks and trailers. Our focus has been, for most of the 36-odd years that I've been part of the company, to be a leading-edge player working solidly in R and D and transferring that research and development into the actual marketplace. We're trying to connect those two ends of the dumbbell. I sometimes wonder whether maybe that term could be applied a little more accurately.

We have about 10% of our business in China today, and that takes me to China quite regularly. It's very important that we continue to benchmark ourselves against global competitors in our industry. One of those benchmarks that I bring home from time to time is a set of the knock-off, counterfeit golf clubs. If you watch the development of golf clubs in the little stores in Shanghai or Shenjen or Beijing, you will see how quickly they evolve from being a copycat to something that is incredibly good. I found that out very recently as I tried out a new set of $150 PING G2s. I shot the best game of my summer with these clubs. If you think about it, that set is about a $2,500 product here in North America, but you can buy it at any golf store in the back alleys of Shanghai for $150, as I said, complete with travel bag, golf bag, a dozen balls, and probably a shirt and a cap, and away you go. And it could cost you an extra $25 for shoes. I bring these back and show them to our people. But this is what we are facing today.

If we look at the importance of manufacturing in Canada, it makes up almost one-fifth of our economy. Certainly, for every dollar that we generate, we're talking about another three-dollar multiplier. It gets tougher and tougher each day, so that today we're up to about seven hours and 50 minutes out of an eight-hour day before we start generating any profits.

Throw into that mix the job situation in Alberta, where the least little thing can annoy somebody and send them packing, looking for a new job. That makes it difficult to continue being globally competitive here in Alberta particularly, but in Canada in general. If we think about the $100-plus billion in new projects that are planned for Alberta, and a 3% unemployment rate—by the way, about 1.6% is the unemployment rate for male Albertans—we certainly are scrounging for more help in whatever we do.

We've lived with a tax policy in Canada that was geared toward job creation through most of the last twenty-odd years. If we look at our manufacturing shipments, we had a phenomenal run back in the nineties, when we grew at an incredible rate. Of course, the recession that was subsequently followed by 9/11 took a lot of the edge off of that. We did pick things back up in the last two or three years, but we're not doing it profitably. We're not leaving enough money for reinvestment.

Here in Alberta in particular, we desperately need reinvestment in things like automation technology enhancement. If we are going to remain competitive after the edge comes off of this energy boom, we must work hard to get more from our people. If you look at Canadians as a whole, we're running about $6,000 per year behind the Americans in terms of per capita GDP. There isn't a hell of a lot of room left for us to squeeze out of our internal systems without huge reinvestment.

Being an entrepreneur, I listened to some of the previous presenters and I think about some of the work we've done with the Alberta Research Council to be one of the first companies to implement robotics in roll forging. I relate well to Peter Ouellette's comments about bringing in leading technology. Together, our two firms took automotive tread worth about $50 a tonne, and using Alberta natural gas and electricity, we converted that at the mill here in Edmonton so that it was worth $500 to $600 a tonne. We loaded it onto Alberta trucks, shipped it to Calgary, and converted it again to a product worth $1,200 to $2,000 a tonne.

But we can no longer do that. We need help. We need more money left with us to put into R and D, capital expenditures, education, and skill development. Give us something back in our taxation policy that changes the focus from job creation to job preservation.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Svendsen.

Mr. Graham.

[Bruce Graham, President and Chief Executive Officer, Calgary Economic Development, Team Calgary]

Good morning. Thank you very much, Mr. Chairman and members of the Standing Committee on Industry, Science and Technology. It's certainly my pleasure to be here, despite the cold. I'm almost positive it's not this cold in Calgary. It was just too early in the morning to really know what the temperature was when I left. It is good to be here.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

It was the same when we arrived.

[Bruce Graham]

I'll begin by mentioning a few statistics, because I don't think western Canada, and certainly not Calgary, is thought of as a manufacturing centre.

About 47,000 people are employed in manufacturing in Calgary. That's about 7.2% of our total employment base. When you look right across Alberta, in the past decade 23% of Canada's new manufacturing jobs were created in this province. So it has certainly been an emerging sector, and Edmonton is a leader in that regard.

Just to put the employment figure into focus, we got Statistics Canada information last week on year-over-year employment gains across the country. The net new jobs in Calgary alone were 30% of the total job increase for the nation--that happened in one economic region. That kind of highlights some of the challenges you are hearing about from some of my colleagues across the table.

I'm not going to carry on talking about the challenges; I'm going to talk about just a small solution that we're exploring. Thanks to your member from Quebec for suggesting I do this.

We set up a relationship with our counterparts from Quebec City and the region around Quebec City. The purpose of that was to see how we could connect business-to-business opportunities, particularly in manufacturing, from the Quebec City region to the Calgary region. This really began in 1956 with a sister-city relationship between Calgary and Quebec City for the Calgary Stampede and the Quebec winter carnival. This relationship is now moving into an economic front.

On the program we've put together with our counterparts from the Quebec City region, essentially 17 manufacturers of building products from the Quebec City area have a representative working out of our office. The salary of that individual is paid for through our sister organization in Quebec City and those 17 manufacturers. We provide the overhead, office space, computer hookup, all the telecommunication links, access to our staff and networks, and all the coffee this person can drink.

In the past four weeks that this person has been here, she has already set up two contract situations for these companies. One of these companies has already set up a permanent employee, who is now working on behalf of that company. In the next five months that this program is being piloted, I'm very confident we are going to see some significant business-to-business opportunities.

We went to Toronto and Ottawa in June of this year, and preceded that visit by doing some surveys of people and businesses in the area. We discovered that there's still a lack of understanding and awareness about what's happening in western Canada. I'm sure if you did the same surveys here you might find there's a very significant lack of awareness and understanding of what's happening in parts of eastern Canada.

I mention this because I think it is something you should consider in your report. This kind of project starts to bridge that gap. While we are very fortunate to have significant economic opportunities--more than we can handle perhaps here in western Canada right now--that tide will likely turn at some point and we will be looking for the same opportunities in the east. So this will start bridging that gap.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Graham.

We'll now go to Mr. McCallum.

Mr. McCallum, I want to thank you for being here on short notice. I know you're here in lieu of your president, Daryl Friesen.

[Jonathan McCallum, Vice President Operations & Engineering, Flexxaire Manufacturing Inc]

I appreciate the opportunity to speak. As was mentioned, the president of the company was supposed to be here, but he is laid up with the flu, so on short notice, I got parachuted in here. So bear with me if I'm not as polished as these fine gentlemen here as far as speaking is concerned.

I want to focus fairly narrowly on one of the challenges we face, which is commercialization. Flexxaire is a small to mid-sized company, with 35 employees. We have a product that we manufacture. It's an innovative product that we developed here in Alberta. We ship worldwide, but our biggest market is the United States. The product is a variable-pitch fan, used on heavy equipment. Caterpillar is probably our biggest customer, but we ship to John Deere and a lot of small OEMs and end-users.

We have faced a lot of challenges. Some were mentioned, as far as the U.S. dollar and the strengthening of the Canadian dollar are concerned, but I want to focus specifically on commercialization for small companies, and I want to compare it to the support that you get during the R and D portion of product development.

I think the government realized years ago that R and D is an expensive endeavour, and it's a high-risk endeavour. It's key to developing new products here in Canada, so the government stepped up and partnered with companies in order to encourage this activity. A couple of ways they have done it is with IRAP and the SR and ED program, to help support and encourage the R and D activity.

Once a product is developed, that support stops—prematurely, I believe—because you have gone from the phase of the R and D portion to the commercialization. The commercialization, getting the product to market, is in a lot of ways very similar to the R and D. It's a heavy investment. It's higher risk. You believe there's a market, but you have to invest fairly heavily. A lot of times, the lack of support between the R and D portion and revenue generating leads to companies not investing appropriately in that portion.

I'll use our company as an example. We developed a new product for a new industry that we hadn't been in, the oil and gas industry. Our products are mostly shipped into the forestry industry. We used the R and D support to develop this new product. We came up with a great product. When it came to commercialization, we didn't know that we wanted to hire a salesperson specifically to target this, so we added it to the rest of our product line. That commercialization phase has stretched out and it hasn't taken root as quickly as it should have.

A solution to this would be to extend the R and D type of funding into the commercialization phase. That would be partnering with companies for marketing efforts, for maybe hiring personnel, for attending trade shows, especially in the international arena. It's quite costly to do that. Again, this is an area where you don't have revenue coming in, so businesses tend to avoid the risk, or they're a little bit risk-averse to that in small companies when resources are tight.

The other issue that was mentioned is patenting, protecting the product. Especially when you're in a world market, it's quite important to protect the product. If all the money has gone into investing in developing this product and then during the commercialization, if the product is not protected, somebody picks it up in another country, then that investment has been for naught.

Basically, how I see the government's role, so far, is to invest and partner with the companies on the R and D portion of the product, and as a partner, they expect a return on investment. That return on investment is once the product gets to market and generates revenue. So continue that support during the commercialization phase. I think it falls right in line with the spirit of the R and D program.

I like to suggest you step up to provide support for the commercialization, for getting the product to market, supporting us as we try to open up the markets in other countries, and also supporting us as we're patenting. It's quite expensive to get patents issued for products in North America, but if you're dealing globally, then you have to get patents in these other countries. And, follow through with partnering with us, because you want the return on investment, you want the product to get to market quickly, and you want that product protected, so we can continue to generate revenue. Follow through with the investment you've already made in the R and D portion.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. McCallum.

We will now go directly into the question and answer session. We have about 45 minutes allotted for the question period. We have about five- or six-minute rounds for each member. So I'd just make the witnesses aware of the timing. I ask members to be brief in questions and witnesses to be brief in response. Members may ask a specific question. If another one of you would like to comment, just indicate to me, and I'll ensure you have the time to comment on the question.

I'll start with Mr. McTeague, for six minutes.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you, Chair.

Thank you, guests, for being here today. It may be cold outside, but you certainly have received us very warmly here, and I appreciate those of you who've travelled from Calgary. I'm sure it wasn't easy to do that this morning. We are interested in the comments you've made, and your perspectives are very refreshing. Some of them are diverse, but ultimately they're all helpful.

I want to focus on one area that would give us a trade-off. We've heard different and varying remarks from manufacturers, from business representatives, from chambers of commerce, from labour groups right across the country, and depending on the region, the exposure to international markets affects the relative health of commercial entities across Canada.

In terms of catching up on the productivity gap that was mentioned, if the government were to make a decision on a two-year regime on depreciation, would that stave off the onslaught of cheap goods coming in from countries like China, which have enormous subsidies? Is this really a panacea in and of itself? Or are we going to have to be a little quicker on our innovation? Or as they said in the nineties, we'll be quick or dead.

Mr. McDougall, if you wish.

[John McDougall]

I won't pretend to be a tax expert. But I certainly see that the biggest need is for people to be able to move quickly and nimbly. If we're moving quickly and moving innovation into the market faster, then a two-year window is certainly going to be helpful. One of the things we see in companies that stay in the forefront is that something in the order of a third of their product mix typically is less than five years old, so it would be quite helpful.

[The Chair, Conservative, James Rajotte]

Mr. Ouellette.

[Peter Ouellette]

When we most recently evaluated the capability of other companies in Canada through the various trade missions coming into Alberta, we saw a huge gap in Canada in the capability of innovation and of performance and experience these companies have relative to other regions of Canada. And that was absolutely shocking to many people, not only in Alberta but in areas like Windsor, where automation is so very strong, driven by their historical experience in the automotive industry. So a huge amount of acceleration can take place at not a whole bunch of cost, and advantages will go directly into the profitability of these companies in eastern Canada that are looking for extra work to load their books.

[The Chair, Conservative, James Rajotte]

Mr. Scott.

[Allan Scott]

I'd say it really could be a direct stimulus. Here in Edmonton you will see some of the best of the best in terms of manufacturing technology, and you'll also see other folks who are struggling because they haven't invested for a period of time. This can be a tremendous catalyst and incentive for that portion of the manufacturing sector that perhaps has not had to push to invest in the new capital. So we look at it as an instrument that can be used across the entire manufacturing sector.

[The Chair, Conservative, James Rajotte]

Mr. Svendsen.

[Mel Svendson]

As business owners, we always have this magic word called “cash”. If we don't have it, we can't function.

The nice part about these rapid writeoffs is that we know we need to reinvest, but we also need to have cashflow. If we can get the rapid writeoff, we know that in a number of areas we can enhance our productivity dramatically, but at some point you have to make choices. Quite often those choices are based on what your net cash position will be when you're done. You're dealing with bankers who are not exactly overly flexible, and they too look at your cashflow.

Giving us that rapid writeoff returns cash to our operation so that we can maintain other parts of our business while we reinvest it. Some of our best growth was back in our rapid writeoff days, when we were able to restore competitiveness globally and move into new markets.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

In essence, you believe that here, certainly, you're able to meet the challenges of products coming in from other nations. You yourself, Mr. Svendsen, have some experience with work over there, where we may never be able to compete with the low-cost pricing that is there. But you believe this will lead to higher levels of innovation, the type that sustains jobs in Canada and that increases jobs in Canada?

[Mel Svendson]

I honestly do.

One of the things that concern me is that I don't want to see our country get overly lost in the service sector, whether it be research or whatever the case may be. Keep one thing in mind: when we manufacture things and we deliver them promptly in North America, we do have a significant advantage over our competitors overseas. If we're quick and responsive and flexible, we can hang on to a lot of market share here in North America.

As transportation improves, we'll see a tougher battle there, but understand one thing: when we start moving high-tech jobs overseas, where we are transferring knowledge, it takes about six weeks to move manufactured goods from China to the mid-west; it takes about six-tenths of a second to transfer intellectual knowledge, intellectual property, around the world.

So...got it?